Looks like a bubble.
— Financelot (@FinanceLancelot) June 2, 2025
The latest data shows a sharp rise in lending to real estate firms, with major banks allocating a larger share of their portfolios to construction and development projects.
The numbers tell the story. The six largest Canadian banks now hold a greater percentage of their assets in real estate-related loans, a trend that has accelerated since early 2024. This shift comes amid rising interest rates and growing uncertainty in the housing market. While banks argue that these investments support economic growth, the risks associated with overexposure to real estate cannot be ignored.
The financial sector has long relied on real estate lending as a key driver of profitability. However, the current surge in loans to developers suggests a higher appetite for risk, particularly as housing demand fluctuates. If market conditions deteriorate, banks could face significant losses, impacting their balance sheets and broader economic stability.
Regulators are watching closely. The Bank of Canada has issued warnings about excessive real estate exposure, urging financial institutions to maintain strong capital buffers. Some analysts believe that the rapid expansion of lending to builders could lead to credit tightening if economic conditions worsen.
Sources:
http://www.bankofcanada.ca/wp-content/uploads/2025/01/swp2025-1.pdf